I have sold some of my long term equity holdings and would like to invest the proceeds so that I can get a regular monthly income. I am willing to tolerate a little bit of risk.
1. Considering that rates are about
to rise and yields about to fall, would it be wise to invest in MIP's or debt funds? I am looking at a minimum holding period of 2-3 years after which I may consider switching
to equity again. Can you suggest
some funds?
2. If the sum invested is large, is there any scope for negotiating with the fund for lower expenses etc.?
- Shashank
Interest rates have certainly not peaked. As rates go up, prices will fall and yields will go up. Since you are willing to tolerate a little bit of risk, you can consider a Monthly Income Plan (MIP) which has a small exposure to equity, the rest in corporate debt. Considering the time frame of your investment, MIP should beat other debt instruments, in terms of returns. The 1-year return of this category was 12.19 per cent, as on April 30, 2010.
However, do note that today the economy is in a sort of flux where short-term rates will rise over the next six months. But if the opinion is that inflation could come under control, then long-term rates could start falling. This is known as curve flattening. HDFC MIP Long Term, HSBC MIP Savings, Reliance MIP and Canara Robeco MIP are four good options to make your choice from. There is no scope for negotiating with the fund for lower expenses.
This article was originally published on June 28, 2010.
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